Why Many Energy Lenders Are Nearing a Make-or-Break Moment

Why Many Energy Lenders Are Nearing a Make-or-Break Moment

Article excerpt

Byline: Kristin Broughton

The next milestone in the energy-lender saga is approaching fast, and it could be crucial in separating the winners from the losers.

That was one of the takeaways from a presentation Wednesday by BOK Financial in Tulsa, Okla., which sought to reassure investors that it has matters under control even though energy loans make up about 19% of its loan book.

Banks reassess the borrowing capacity of oil exploration and production companies twice a year. The spring round of energy loan redeterminations is scheduled to begin in April, and those reviews could give BOK a chance to pull back some of its exposure, said Stacy Kymes, head of corporate banking at the $31.5 billion-asset BOK.

The reason is that those kinds of borrowers tend to have substantial collateral that can be reassessed, banks such as BOK and BB&T have argued lately. Lenders can take steps such as reining in credit lines.

"We'll get to revalue that collateral, and that's a big part of [why] this area has been more secure," Kymes told attendees of a conference sponsored by RBC Capital Markets.

BOK has a much safer energy portfolio than many of its Gulf Coast rivals, Kymes said, because over the past few years it has avoided lending to small companies that provide ancillary drilling services, Kymes said.

Instead, it has focused on larger, investment-grade producers. It is an important -- and often overlooked -- distinction, Kymes said. If oil prices continue to stay low, banks with loans to services companies will be the first ones to suffer.

"Within energy, not all exposure is created equal," Kymes said. Services companies have been more sensitive to oil-price declines in previous cycles, he said.

Kelly King, the chief executive of the $210 billion-asset BB&T in Winston-Salem, N.C., has made similar comments about services firms. …